Nevada will be facing a $1.2 billion budget shortfall from the General Fund in the upcoming fiscal year. Gov. Steve Sisolak released today a Nevada COVID-19 Fiscal Report along with details about the Fiscal Year 2021 budget.
He is proposing $500 million in reductions to agency budgets. The state published the report ahead of the Nevada Legislative Special Session, scheduled for July 8 to address the budget shortfalls caused by business and government shutdowns from COVID-19.
What the state is facing
Nevada’s economy did not suggest that it was in a recession before the pandemic. As of October 2019, the unemployment rate was about four percent.
The state’s unemployment rate is now 30 percent.
“During the Great Recession, Nevada lost approximately 180,000 jobs over nearly three years. During the COVID-19 crisis, Nevada lost more than 250,000 jobs in the past three months,” the Nevada COVID-19 Fiscal Report stated. “Following the events of September 11, 2001, Las Vegas visitor volume reported a peak decline of 12.4 percent. As a result of COVID-19 closures, visitor volume was off 97.3 percent in April 2020.”
Nevada’s budget is largely dependent on sales and use taxes, which have declined by 30 percent, property taxes and gaming and tourism-related taxes.
The Nevada Gaming Control Board released a report based off of taxes and gaming revenue in May 2020, showing a 99 percent decline statewide. The report noted that as of right now, the tourism industry is diminished.
“The end of 2019 represented a highwater mark for Nevada’s economy, as it is now structured. Nonetheless, the structure itself has repeatedly demonstrated vulnerability, with significant over-reliance on casino gaming and other tourism-related taxes,” the report stated.
During the fiscal year of 2019 to 2020, Nevada’s projected revenue shortfalls are estimated at $811 million. On May 11, Sisolak issued a Declaration of Fiscal Emergency, which allowed the state to transfer approximately $401 million from the Rainy Day Fund to the General Fund.
The General Fund supports public agencies and programs like education and public health.
Nevada’s General Fund is projected to be short approximately $1.2 billion for 2020-21 fiscal year, based on Nevada Department of Taxation revenue statistics for April 2020.
Budgets are usually developed over months of review and decided during a 120-day legislative session, but in an emergency situation, the following proposals were prepared quickly to address the economic impacts of the COVID-19 pandemic. The proposals will be addressed during the special legislative session.
What could be cut
According to the Nevada COVID-19 Fiscal Report, 35 percent of the General Fund is allocated to k-12 education. About 34 percent is allocated to health and human services, and about 16 percent is allocated to higher education. These three categories make up a majority of the General Fund and subsequently will be impacted the most by the shortfall.
The Nevada COVID-19 Fiscal Report proposes 12 days of furloughs for state employees starting July 1, 2020 and freezing merit salary increases for state and Nevada System of Higher Education (NSHE) employees in addition to holding about 700 positions vacant, to avoid layoffs. About $191 million has been identified to be reduced from NSHE.
K-12 education is facing a proposed reduction of $156 million from the $711 million in legislative approved categorical funding for the fiscal year of 2020 to 2021. Some of those cuts are proposed to come from class size reduction initiatives, Read by Grade 3, teacher school supply reimbursement funding, along with teacher incentives, like college and career readiness programs, school safety and financial literacy.
Several reductions for Nevada Medicaid recipients from the Nevada Department of Health and Human Services (DHHS) are also being proposed. There are 688,167 Nevada Medicaid recipients, which has increased by over 44,000 people since Feb. 2020.
Many optional services are on the cutting board to be eliminated, including support services for the homeless.
Other reductions from Nevada Medicaid include a cap on dental services, limited physical therapy for adults and hospice services. DHHS could be facing a $233 million reduction.
Potential sources of additional funding
Nevada could receive additional federal dollars if Congress acts to provide financial aid to states. The governor also may consider raising taxes after winning a two-thirds vote.
“The Governor determined that any options for increasing revenue should be limited to augmenting existing major revenue sources or augmenting multiple smaller existing revenue sources,” the COVID-19 Fiscal Report stated.
If granted additional funding, education services like the class-size reduction program, and school safety initiatives, health services for those experiencing homelessness and dental services for Medicaid recipients and a reduction in state employee furloughs, would be prioritized to be refunded.
“The timeline of Nevada’s economic recovery is uncertain,” the report noted.